Letter to the Editor: Taxes and compensation of municipal workers

A recent letter of mine about the Edmonds 2013 budget caused some to comment to me that one big reason why our city has insufficient revenue is because the city cannot increase property tax, its major source of revenue, by more than 1 percent annually – which is below the rate of inflation.

It might be helpful to review a little bit of relevant history. In 1937 the motor vehicle excise tax was adopted. The percentage amount of this tax was increased over the years, as was the vehicle value upon which the tax was based. By the end of the 1990s the State said that the value of your new vehicle did not decrease until it was three years old, when we all know that the value drops as soon as the vehicle leaves the dealer’s premises.

In 1971, annual increases in local regular property tax levies were limited to 6 percent; in 1997, the increases were further limited to the rate of inflation. Presumably even higher increases had been allowed prior to 1971.

Those two taxes provided the revenue for cities to meet the ever-increasing compensation negotiated by the unions representing their workers. Pay for workers in the public sector grew faster than in the private sector, and their benefits (notably health insurance and pensions) surpassed the benefits generally received in the private sector.

Both taxes eventually became unsustainable and were eliminated by initiatives and legislation. In 2000 the motor vehicle excise tax was reduced to $30, and in 2001 annual increases in local regular property taxes were limited to 1 percent.

The 1 percent limit on property tax increases is not a factor of any significance relative to our city’s revenue shortage. If property taxes were able to be increased by the rate of inflation — current Seattle area estimate is 2.7 percent — that would allow collection of only an additional 1.7 percent of $9.8 million (2013 regular property tax) = $156,000; the city’s revenue shortage for 2013, before the reductions proposed by Mayor Earling, is $1.5 million – and forecast to grow beyond that in the following years.

The City of Edmonds would now be collecting near $2 million additional revenue had the motor vehicle excise tax not been reduced to $30. The last full year this unsustainable tax was collected was 1999; Edmonds received $1,244,796. In 2011 all the city received was $11,387. It was an unsustainable tax that is now essentially gone, but the taxpayers, throughout Washington state, are left to deal with unsustainable employee compensation. Economic development can alleviate this situation, but it is by no means a remedy.

The remedy is reduced compensation. The “golden eggs” that funded the superior compensation are gone. The unions are unlikely to accept any reduction in compensation, so the alternative is fewer employees. In order to maintain services, my view is that the employee reductions should be achieved by obtaining efficiencies through the amalgamation of municipalities. It is time for our State government to act.

10 COMMENTS

I am sorry but I disagree with your analysis regarding the property tax issue. Your figures are for 1 year and don’t account for the past several years when only 1% was allowed. The 1% law goes back several years and the difference between inflation and 1% would need to be compunded over those several years. This is a factor, it is very relevant and I believe this Eyman initiative was a big mistake. If the increase was tied to inflation I could accept it, but I don’t agree with the 1%. It simply isn’t sustainable.

Your comments on the loss in revenue regarding the motor vehicle tax are well stated, but you should note that these funds have to be used for our transportation system only. I would also like to remind everyone that Edmonds has little or no money for a regular street overlay program. This “program” isn’t sustainable either. We are currently passing the buck to future generations in regards to the appropriate street repairs and overlays needed to properly maintain our system. Some kind of financing plan needs to be developed.

I also have to comment on your repeated attack on Employee compensation at least as it pertains to my field (Engineering) of expertise. When the economy was booming and I worked for the City, we had great difficulty getting qualified employees to work for the wages and compensation that was offered. I have also recently worked in the Private sector where for compable work the benefits were less, but conversely the wages were significantly higher. In summation the combination of wages and benefits offered by Edmonds during regular economic times are fair and just, not outrageous by any means. Based on what I have seen, if you want good qualified workers you will need to pay them fairly. In other words you get what you pay for.

You, of course, are correct that I did not take into account the compounding affect of inflation on property tax. As you probably know, the Eyman initiative after being passed by the voters was later found to be unconstitutional. The 1% limit was reinstated by the legislature in 2007.

You’ve stated that in your experience engineers are paid more in the private sector. I believe that your experience is with a consulting company. If that’s right, that’s not a fair comparison because consulting companies pay above average salaries.

” Based on what I have seen, if you want good qualified workers you will need to pay them fairly. In other words you get what you pay for.”

For reference and clarity, I am retired and have been self employed most of my working days. I started my own company and worked hard at it for many years. Benefits? Outside of working for myself, I had none. My health insurance was minimal and ridiculously expensive and I paid double Social Security taxes because I was self employed and an entrepreneur. A one percenter I am not.

What I see is a labor market full of well qualified workers willing and able to do the job for a fair wage or salary and a reasonable benefit package. I also see public employees and their unions demanding cost of living raises and additional benefits in the midst of a debilitating economic slum.

Cut employment expenses now!

Do it through retirement w/o rehires. Consolidation of responsibilities, pooling of resources. Just do it.

Balance the Budget. If the citizen taxpayers can, surely the City can!

It’s of interest, I believe that prior to the voter approval of Tim kEyeman’s 1% limit, the 6% increase was put in place during the depression of the 1930’s. Apparently the folks back then thought that local government should be restrained, but not strangled.

Bob:
That’s a good observation that hadn’t previously registered with me. Perhaps taxpayers were more understanding back then because more of the city’s revenues were going to needed non-compensation expenditures. In 1962 JFK allowed the unionization of federal government workers. Kennedy’s order swung open the door for the rise of a unionized public work force in many states and cities. One consequence of that is that over the years since then a disproportionate share of city revenues have shifted to compensation. Evidently taxpayers eventually tired of that and voted for the 1% limit on property taxes.

Ron,
Don’s comparison of consulting firm compensation to City engineer compensation is valid …I don’t know if his numbers are right but it is certainly a valid comparison. The jobs for civil engineers working on public works are mostly limited to state/local agencies and consulting firms.

Regarding amalgamation of governments to reduce overhead, it seems like sharing some local government functions with neighboring towns would reduce overhead including compensation costs. Street and parks maintenance, building dept. and possibly others should be explored. I don’t see any downside to exploring amalgamation of selected City departments with nearby towns to reduce overhead. Whether this actually reduces overhead and compensation costs is another question; the answer will depend on how it’s implemented.

I know some of you probably think I have no stake in what goes on in Edmonds. I believe you to be wrong since I do a fair amount of shopping there at one particular store. Dropped over $200.00 in sales tax last week. You’re welcome.

Anyway, when you start comparing public wages to private wages there are a couple of things to consider. Private companies are only required to have two withholding items, Social Security Insurance and Federal Income Taxes. In Washington State all public employees have an additional withholding for retirement funding. Of course this is part of the “golden eggs” they are so graciously given, but it has a negative aspect in that it reduces their net income. So while the gross wage looks great, the take home may not be so.
And please, don’t include the firefighters in this comparison. They only go to work 8 days a month. This allows most of them to have another job (sometimes at another jurisdiction as a firefighter) which usually pays pretty well. That’s why they all, well most of them, drive really nice cars. I am not criticizing them for this, as they do work for what they have. But their unique schedules really put them in a unique situation.

It is really disheartening to see a discussion of reducing compensation as a means to balancing a budget. I cannot count how many times someone told me that they couldn’t be paid enough to do the job I had.

Those in the private sector also have a withholding for retirement. Defined benefit pension plans have mostly vanished, but if employees want a retirement benefit beyond social security they must fund a 401k deferred compensation plan. Additionally, those in the private sector typically must pay a portion of the monthly premium for their health insurance – in the public sector it is typical for 100% of the premium for the employee to be paid by the employer.

Mr. Wambolt,
Agreed that there are some people that do have retirement withholding, but those are usually not mandatory and at an amount set by someone else. Similar but not apples to apples, I think.

I would also be willing to bet that most citizens expect the government to respond when called. To make sure this happens the government has to have a healthy work force. Providing health insurance helps to do this. We run our government agencies with as few employees as possible and when they become sick there are not a lot of replacements available. So it is in our best interests to make sure they are healthy and to have good health care. They are working for us (I say us now since I am retired).

The City of Edmonds is currently changing their health plan provider. It is supposed to be less expensive.

I cannot speak to other defined benefit pension plans, other than California, but I know that the State of Washington has an established retirement system that is financially sound. It will remain so as long as the State Legislature leaves the funds alone. The workers, the employers, and the State all provide funds for that system but the State has tried to “borrow” from it and that leads to deficits and could lead to its failure. It always amazes me that people who have been served by loyal “servants” for more than 30 years, would then want to reduce or eliminate the “servants” pensions.

Current retirees, by the way, receive no health benefits in retirement, they have to pay for their own. No golden egg there.

If other States had modeled their pension systems like Washington’s, then perhaps their systems would still be solvent. But they didn’t. California for example allowed employees to have percentages that were truly unsustainable. They didn’t fund their system properly so it became a liability.

I retired from being a teacher in Oregon. The state continually promised that we might not be well compensated but that we would be taken care of in retirement. Then people complained about the teachers’ expensive retirement. Paying fairly and having teachers and others pay at least part of their health costs makes more sense. We are always more careful of spending when it comes out of our pocket. The way health care is funded is a broken system and not sustainable. I think when people’s pay is mentioned that the cost of all the benefits should be included so we can make better comparisons of compensation.

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